For Julián Castro, plenty of challenges at HUD

Running a federal agency offers Julián Castro the opportunity to boost his national profile, but the San Antonio mayor would also be under pressure to use his perch at the Housing and Urban Development Department to do more than just burnish his political credentials.

Housing groups and advocates for the poor want the Obama administration to do more to aid urban neighborhoods and provide affordable housing for low- to middle-income Americans who are still struggling even as the economy continues to recover from the depths of the recent recession.

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As secretary of Housing and Urban Development, Castro would have the opportunity to play a big role in these debates through programs to make rental housing more widely available, the department’s ability to make home loans easier to get and by taking a tougher stance in settlements with banks who run afoul of housing and banking laws.

“I do think that he clearly understands these issues and that is very encouraging to us,” said Gary Kalman, the director of federal policy for the consumer group Center for Responsible Lending. “You really are seeing certain communities continue to be devastated by essentially being locked out of the mortgage market.”

President Barack Obama on Friday announced he is nominating Castro to be HUD secretary and Shaun Donovan, who currently holds that title, to be White House budget director. The San Antonio mayor will have to be confirmed by the Senate, which shouldn’t be a problem after a recent rule change preventing filibusters of presidential nominees.

“I look forward to being part of the department that will help ensure that millions of Americans all across the country have the chance to get good, safe affordable housing and to reach their American dreams,” Castro said at the White House event to announce his nomination.

Castro, 39, is an up-and-coming leader in the Democratic Party who was chosen by Obama to give the keynote speech at the 2012 Democratic National Convention and is considered a potential vice presidential nominee for the 2016 ticket.

At HUD, he would have several avenues to make a policy impact. The agency plays a key role in the country’s housing system by sending grants to local governments and nonprofits in different neighborhoods to help broaden access to affordable housing. It also runs the Federal Housing Administration, which insures home loans as a way to make financing available typically for first-time home buyers and minorities.

Republicans have recently tried to make FHA a poster child for government overreach after it required for the first time a $1.7 billion infusion of taxpayer cash last year to cover a shortfall in its insurance fund brought about by many of the loans it backed going south.

“If the FHA was a private financial institution, likely somebody would be fired, somebody would be fined or the institution would find itself in receivership,” House Financial Services Chairman Jeb Hensarling (R-Texas), who once likened the agency to notorious subprime lender Countrywide, said last year after the need for the bailout was announced.

The agency has taken steps to shore up its finances and is now facing worries from housing advocates that it hasn’t done enough to loosen loan standards and is hurting low- and middle-income borrowers.

Castro, if confirmed, would be under pressure to balance efforts to expand lending with how to protect FHA’s taxpayer-backed insurance fund.

Industry analysts do not expect Castro to change much at the agency, such as what premiums it charges to back loans or new guidelines that are being designed to give lenders more clarity on when loans they originate meet FHA standards. Lenders have been reluctant to extend credit to borrowers with less than pristine credit histories since the market’s downturn out of fear they could be required to refund more FHA claims on defaulted loans.

But Castro could be pressured to do more if the housing market doesn’t pick up as the Obama administration has made clear it wants to make it easier for borrowers to get a mortgage.

“Throughout his administration, the president has been clear that where we can take responsible action to strengthen the housing market and the recovery, we should,” top White House economic advisers and Jeff Zients wrote in an op-ed for CNN Money this week.

Castro will likely be pressed by senators during the confirmation process about what changes he may make at FHA.

Republicans are also sure to quiz him on the heated debate over whether cities should be able to seize loans from investors through eminent domain in order to reduce the amount owed and help the borrower stay in their home.

Wall Street groups have lobbied aggressively against the idea both at the local and federal level arguing it is unfair to investors and will ultimately damage those neighborhoods because no one will want to provide financing for loans in the area. Housing advocates say it’s the best hope for some of the hardest hit neighborhoods.

Republicans have pressed HUD to make a decision on whether it would allow FHA to back the refinancings of loans that are seized through eminent domain. Donovan has said that should be left to the courts.

At HUD, Castro will also be expected to delve into policy decisions he’s had to confront as the mayor of the country’s seventh largest city.